Question:
If 25% of the US population left their 401k (and other retirement funds) alone, reduced contributions by 25%(50%, 75%, 100%), withdrew all non-penalized funds and kept personal savings out of their banks, did not otherwise invest their money, what would happen nationally, internationally, immediately, long-term?Answer:
My best guess is that you are interested in the effects of investors withdrawing from the financial market (as opposed to the labor market or some other market).
If 25% of the US population suddenly changed their investment behavior as you have described, in the best case scenario I would expect a decrease in the prices of financial assets (e.g., individual stocks, bonds, and mutual funds) and increase in the interest rates. A less optimistic scenario is that the change would trigger a stock market crash and collapse of the banking system (or a government take-over to prevent an imminent collapse). Things would depend on the amount of assets these 25% of the population own and try to liquidate. In any event, the change will likely bring about a global recession in the short run. In the long run, the change implies a higher cost of raising capital for firms (from the equity and debt markets). As a result, less investment will be undertaken, which would likely lead to a lower rate of economic growth.
